Financial results analysis
Sales in the third quarter of 2014 decreased by 6% at USD 1,353 million compared to USD 1,444 million in the second quarter of 2014. Shipments in the third quarter of 2014 decreased by 7% to 433 thousand tonnes compared to 466 thousand tonnes in the second quarter of 2014, mainly due to the seasonal effect inEurope.
EBITDA was USD 137 million in the third quarter of 2014 compared to EBITDA of USD 164 million in the second quarter of 2014. Although partly offset by the continuing progress of the Leadership Journey®5 and the Top Line strategy, the impact of traditional seasonality in Europe resulted in lower EBITDA in the quarter compared to the previous quarter. Aperam has more than doubled its profitability compared to the third quarter of 2013. The Leadership Journey® has continued to progress over the quarter and has contributed a total amount of USD 415 million to EBITDA since the beginning of 2011.
Depreciation and amortization expense in the third quarter of 2014 was USD 55 million.
Aperam had an operating income in the third quarter of USD 82 million compared to an operating income of USD 107 million in the previous quarter.
The Company recorded a loss from other investments of USD 17 million in the third quarter of 2014, related to an impairment loss of USD 14 million booked on the minority stake it holds in Gerdau, a Brazilian steelmaker, and USD 3 million booked on the minority stake it holds in General Moly, a US molybdenum mining company.
Net interest expense and other financing costs in the third quarter of 2014 were USD 36 million, primarily related to financing costs of USD 19 million and USD 6 million of non-recurring expenses related to the announcement of the early redemption of the USD 250 million Bonds due 2016 on October 1, 2014. Realized and unrealized foreign exchange and derivative losses were USD 2 million in the third quarter of 2014.
The Company recorded a net income of USD 21 million, inclusive of an income tax expense of USD 6 million, in the third quarter of 2014.
Cash flows from operations in the third quarter were positive at USD 65 million, despite a working capital increase of USD 91 million. CAPEX in the third quarter was USD 24 million.
As of September 30, 2014, shareholders’ equity was USD 2,851 million and net financial debt4 was USD 591 million (gross financial debt as of September 30, 2014 was USD 990 million and cash and cash equivalents were USD 399 million).
The Company had liquidity of USD 799 million as of September 30, 2014, consisting of cash and cash equivalents of USD 399 million and undrawn credit lines6 of USD 400 million.
Operating segment results analysis
Stainless & Electrical Steel
The Stainless & Electrical Steel segment had sales of USD 1,116 million in the third quarter of 2014. This represents a decrease of 4% compared to sales of USD 1,162 million in the second quarter of 2014. Shipments during the third quarter were 422 thousand tonnes, including 250 thousand tonnes in Europe and 172 thousand tonnes inSouth America. This is a decrease of 6% compared to shipments of 449 thousand tonnes in the previous quarter (287 thousand tonnes in Europe and 162 thousand tonnes inSouth America). The volume decrease was mainly due to the seasonal impact inEuropecompared to the second quarter. However this seasonal effect was limited compared to third quarter of 2013. Overall, average selling prices for the Stainless & Electrical Steel segment were higher for the quarter.
The segment had EBITDA of USD 109 million in the third quarter of 2014 compared to USD 124 million in the second quarter of 2014. EBITDA from South America decreased in the third quarter of 2014 at USD 54 million, including USD 10 million positive results from the sale of electricity surplus (compared to an EBITDA of USD 58 million in Q2 2014 including USD 19 million positive results from the sale of electricity surplus). InSouth America, the slight increase of shipments and some operational improvements partly compensated the reduction of positive results from the sale of electricity surplus. EBITDA fromEuropedecreased from USD 66 million in the second quarter of 2014 to USD 55 million in the third quarter of 2014. InEurope, the impact of the traditional seasonal effect was more limited than the previous years and partly compensated by a good product mix and the continuous contribution of the Leadership Journey®.
Depreciation and amortization expense was USD 47 million in the third quarter of 2014.
The Stainless & Electrical Steel segment had an operating income of USD 62 million during the third quarter of 2014 compared to an operating income of USD 76 million in the second quarter of 2014.
Services & Solutions
The Services & Solutions segment had a 7% decrease in sales during the quarter, from USD 630 million in the second quarter of 2014 to USD 584 million in the third quarter of 2014. In the third quarter of 2014, shipments were 171 thousand tonnes compared to 188 thousand tonnes in the previous quarter. The Services & Solutions segment had flat average selling prices during the period compared to the previous period.
The segment had EBITDA of USD 21 million in the third quarter of 2014 compared to EBITDA of USD 30 million in the second quarter of 2014. Although the level of activity remained high overall, the decline of EBITDA was due to the seasonal impact inEuropeand lower positive stock effect compared to the second quarter.
Depreciation and amortization expense was USD 6 million in the third quarter of 2014.
The Services & Solutions segment had an operating income of USD 15 million in the third quarter of 2014 compared to an operating income of USD 24 million in the second quarter of 2014.